Dismiss Notice
Join Physics Forums Today!
The friendliest, high quality science and math community on the planet! Everyone who loves science is here!

Unpredictable inflation and borrowing money

  1. Apr 18, 2009 #1
    Is it true that we should borrow money during high inflation periods and lend during deflation periods?
  2. jcsd
  3. Apr 18, 2009 #2


    User Avatar
    Science Advisor
    Homework Helper

    Yes (assuming the interest rates don't keep up.)

    Inflation effectively destroys debt - that's why the rich and banks object to it so much.
    My parents bought a house in the early 70s for what would now be a months salary.
  4. Apr 18, 2009 #3
    well, that is an oversimplification, but essentially true. inflation does erode debt, but deflation increases the burden of debt, because you would owe more in terms of purchasing power.
  5. Apr 18, 2009 #4
    How true? I know that US government has inflation-indexed bonds but are loans interest also work like that?

    Does that also mean if banks sense that inflation is coming, they would stop lending money? Or, they will just raise the interest rates?
  6. Apr 19, 2009 #5


    User Avatar
    Science Advisor
    Homework Helper

    They would raise the rates. This would indirectly cause them to lend less.
  7. Apr 23, 2009 #6

    It all depends on your personal circumstances really.
    If the real interest rate is low (bank rates - inflation) or negative you may as well spend.
    If it is high saving looks a good option.
    A lot depends on what you want to buy and what future prices are likely to be.
Know someone interested in this topic? Share this thread via Reddit, Google+, Twitter, or Facebook

Similar Discussions: Unpredictable inflation and borrowing money
  1. Money (Replies: 9)

  2. Money and Inflation (Replies: 5)

  3. Unpredictable people (Replies: 4)